How to set a tradie charge out rate

How do I calculate and set my tradie charge out rate?

Your charge out rate can influence if you make a profit or a loss in your trade business.

There are traps to be aware of when setting your rate. Be careful not to underprice, but do not overprice unless your strategy is high-end! It’s hard to get the balance right. Reviewing your charge out regularly is also important to maintain profitability.

Here a couple of industry charge out fallacies

• Charge out rates are all the customer worries about when engaging with your services
• I should set the same price as others to make sure I am competitive
• Be the lowest in the market
• Price low to get the work
• You can charge a different rate depending upon how rich the customer is

Charge out rates come back to why the customer buys in the first place. Customers in most case value service , value for money and a good job.

Your customers and tradie charge out rates

Customer perception on price and charge out rates

• Premium!
• Good value!
• Cheap and nasty!
• Ripoff!
• Great and fair price!

Those customers basing their purchase decisions purely on price may go for the lowest charge out rate or quote. Typically, these customers lurked around the online web service quoting sites where it’s cutthroat. They don’t care about the quality they are focused on the job

Sometimes, tradies who go cheap try and cut corners to save a $ for you and them

Then you have the customer who values service and wants things done for a fair price . These should be your ideal customer. They understand that the cheapest isn’t always the best. In setting your charge out rate think about what the customer will expect compared to the cheap and cheerful tradie who may not deliver in the areas that command a better charge out rate ;

• Poor service
• No turning up
• No backup
• No finishing’
• Delays
• Shoddy materials

These dictate why you may be more expensive than your competitor. Selling your service with your quote will win you the job. As one client said, we focus on customer perception. We dress impeccably, as in many cases, we are coming to your home. It’s part of why we charge what we charge and don’t base our sale proposition on price.

However, in determining charge-out rates, market forces are at play. In an ideal world, a rate is determined based on overheads, etc. In many cases, it’s what the market will bear and customer expectations. Therefore, a basic rule is don’t be the cheapest on the block, and if you are the most expensive, make sure you’re winning enough work.

Why can I charge more?

This leads to a discussion about those who can charge the customer whatever they like, as the customer demands an immediate response, like fixing it today and hang the cost.

These are often commercial customers where your expertise depends upon them being able to get back to work.

Profitability needs to be based on overheads, labour costs, and margins. Eating into your margin leaves you with poor cash flow and tax debts. Watching your profitability position should be on every trader’s radar. We recommend you review your XERO or MYOB reports monthly to ensure your business meets its targets.

To make a reasonable profit, you have to focus on your numbers. By focusing on the numbers, your gross margin per job increases, and so does your profitability. Reach out if we can help you further.